The Hidden Information Content: Evidence from the Tone of Independent Director Reports

42 Pages Posted: 27 Jan 2018

See all articles by Jiao Ji

Jiao Ji

University of Sheffield - School of Management

Oleksandr Talavera

University of Birmingham

Shuxing Yin

University of Sheffield - School of Management

Date Written: January 25, 2018

Abstract

The paper investigates the link between the information content of independent directors’ reports (IDRs) and firm financial outcomes. By conducting sentiment analysis of 23,984 IDRs of the Chinese listed companies from 2004-2012, we find that the positive tone of IDRs is likely to signal an increase in future firm performance. We also posit that the tone of IDRs and its association with firm performance depends on director’s incentives to monitor. Our results suggest that independent directors with greater career concerns (i.e., young directors or experts in accounting or finance) are more critical in evaluating firm fundamentals and express more negative tone in their reports. The relationship between the negative tone of IDRs and future firm performance is stronger for firms with greater monitoring needs. Overall, our evidence is consistent with the conjecture that career concerns motivate independent directors to disseminate information to external stakeholders.

Keywords: Text Analysis, Tone, Independent Director Report, Corporate Governance

JEL Classification: G30; M410

Suggested Citation

Ji, Jiao and Talavera, Oleksandr and Yin, Shuxing, The Hidden Information Content: Evidence from the Tone of Independent Director Reports (January 25, 2018). Available at SSRN: https://ssrn.com/abstract=3110205 or http://dx.doi.org/10.2139/ssrn.3110205

Jiao Ji (Contact Author)

University of Sheffield - School of Management ( email )

9 Mappin Street
Sheffield, S1 4DT
United Kingdom

Oleksandr Talavera

University of Birmingham ( email )

Edgbaston, Birmingham B15 2TT
United Kingdom

Shuxing Yin

University of Sheffield - School of Management ( email )

9 Mappin Street
Sheffield, S1 4DT
United Kingdom

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